CIR VS.

SUTER

FACTS

A limited partnership named William J. Suter 'Morcoin' Co., Ltd was formed
30September 1947 by William J. Suter as the general partner, and Julia Spirig and
Gustav Carlson as the limited partners. They contributed, respectively, P20K, P18K
andP2K. it was also duly registered with the SEC. The firm engaged in importation,
marketing, distribution and operation of automatic phongraphs, radios, T.V. , their parts
and accessories.

On 1948 Suter and Spirig got married and thereafter Carlson sold his share to the
couple, the same was also registered with the SEC.

The limited partnership had been filing its income tax returns as acorporation, without
objection by the herein petitioner, Commissioner of Internal Revenue.

Until in 1959 when the latter, in an assessment, consolidated the incomeof the firm and
the individual incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter inthe amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Suter protested the assessment but CIR denied his request.
Suter appealed to CTA which reverse the decision of CIR.
CIR filed to SC a petition for review.
ISSUE:

Whether or not the limited partnership has been dissolved after the marriageof Suter
and Spirig and buying the interest of limited partner Carlson.

RULING: No, the limited partnership was not dissolved.

“A husband and a wife may not enter into a contract of generalcopartnership, because u
nder the Civil Code, which applies in the absence of express provision in the Code of C
ommerce, persons prohibited from makingdonations to each other are prohibited from
entering into universal partnerships. (2Echaverri 196) It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing partnership.

CIR failed to observe the fact that Sutre “Morcoin” Co., Ltd was not universal
partnership but a particular one. Since the contribution were fixed sum of money and
neither one of them an industrial partner.

“What the law prohibits was when the spouses entered into a general partnership. In
the case at bar, the partnership was limited.
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In The Matter of the Petition for Authority to Continue Use of the Firm Name
“Ozaeta,Romulo, De Leon

Facts:

The surviving partners of Atty. Herminio Ozaeta filed a petition praying that they be
allowed to continue using, in the name of their firm, the names of their partner
who passed away.

PETITIONERS’ ARGUMENTS

1. Under the law, a partnership is not prohibited from continuing its business under
a firm name that includes the name of a deceased partner. NCC 1840 explicitly
sanctions the practice. The use by the person or partnership continuing the
business of the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the deceased partner
liable for any debts contracted by such person or partnership.
2. In regulating other professions (accountancy and engineering), the legislature
has authorized the adoption of firm names without any restriction as to the use of
the name of a deceased partner. There is no fundamental policy that is offended
by the continued use by a firm of professionals of a firm name, which includes
the name of a deceased partner, at least where such firm name has acquired the
characteristics of a "trade name”.
3. The Canons of Professional Ethics are not transgressed by the continued use of
the name of a deceased partner because Canon 33 of the Canons of
Professional Ethics adopted by the American Bar Association declares that:
4. The continued use of the name of a deceased or former partner when
permissible by local custom is not unethical but care should be taken that
no imposition or deception is practiced through this use.
5. There is no possibility of imposition or deception because the deaths of their
respective deceased partners were well-publicized in all newspapers of general
circulation for several day. The stationeries now being used by them carry new
letterheads indicating theyears when their respective deceased partners were
connected with the firm .Petitioners will notify all leading national and
international law directories of the fact of their deceased partners' deaths.
6. No local custom prohibits the continued use of a deceased partner's name in a
professional firm's name. There is no Philippine custom or usage that recognizes
that the name of a law firm identifies the firm’s individual members
7. The continued use of a deceased partner's name in the firm name of law
partnerships has been consistently allowed by U.S. Courts and is an accepted
practice in the legal profession of most countries

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Issue:

Whether or not the law firm “Ozaeta, Romulo, De Leon, Mabanta & Reyes” is allowed to
sustain the name of their deceased partner, Atty. Herminio Ozaeta, in the name of their
firm.

Ruling:

NO. Petitioners advised to drop the names SYCIP and OZAETA from their respective
firm names. Names may be included in the listing of individuals who have been
partners, indicating the years during which they served.

Citing the Cases of:

The Deen case [1953]

– Court advised the firm to desist from including in their firm designation the name of
C. D.Johnston, who has long been dead

Register of Deeds of Manila v. China Banking Corporation [1958]

–In this case, the law firm of Perkins & PonceEnrile moved to intervene as amicus
curiae.The Court advised the firm to drop thename of E. A. Perkins from the firm name,
and ruled that no practice should be allowed which even in a remote degree could give
rise to the possibility of deception.

- Deen case cited in the ruling.

The Supreme Court in the Deen and Perkins cases laid down a legal rule against which
no custom or practice to the contrary, even if proven, can prevail. This is not tospeak of
our civil law which clearly ordains that a partnership is dissolved by the death of any
partner.

Custom which are contrary tolaw, public order or public policy shall not be
countenanced.

The use in their partnership names of the names of deceased partners will run counter
to NCC 1815.

ON ARGUMENT #1

NCC 1840 is within Chapter 3 of Title IX entitled "Dissolution and Winding Up."

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It primarily deals with the exemption from liability in cases of a dissolved partnership, of
the individual property of the deceased partner for debts contracted by the person or
partnership, which continues the business using the partnership name or the name of
the deceased partner as part thereof. Whatthe law contemplates therein is a hold-over
situation preparatory to formal reorganization.Secondly,

ON ARGUMENT #2

A partnership for the practice of law cannot be likened to partnerships formed by other
professionals or for business.

The law on accountancy specifically allows the use of a trade name in connection with
the practice of accountancy.A partnership for the practice of law is not a legal entity. It is
a mere relationship or association for a particular purpose. Itis not a partnership formed
to carry on trade or business or of holding property. The use of a nom de plume,
assumed or trade name in law practice is improper.

Primary characteristics which distinguish the legal profession from business

ON ARGUMENT #3

Canon 33 : does not consider as unethical

the continued use of the name of a deceased or former partner when such a practice is
permissible by local custom, but the Canon warns that care should be taken that no
imposition or deception is practiced. In the Philippines, no local custom permits or
allows the continued use of a deceased or former partner's name .Firm names, under
our custom, identify the more active and/or more senior members or partners of the law
firm.

The possibility of deception upon the public, real or consequential, where the name of a
deceased partner continues to be used cannot be ruled out. A person in search of legal
counsel might be guided by the familiar ring of a distinguished name appearing in a firm
title.

ON ARGUMENT #6

U.S. Courts have allowed the continued use of a deceased partner's name because it is
sanctioned by custom. Not so in this jurisdiction where there is no local custom that
sanctions the practice.

Custom has been defined as a rule of conduct formed by repetition of acts, uniformly
observed (practiced) as a social rule, legally binding and obligatory. Courts take no
judicial notice of custom. A custom must be proved as a fact, according to the rules of

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evidence. A local custom as a source of right cannot be considered by a court of justice
unless such custom is properly establishedby competent evidence like any other fact.

Petitions DENIED

CONCURRENCE OF J. FERNANDO

It is out of delicadeza that the undersigned did not participate in the disposition of these
petitions. Sycip Salazar started withpartnership of Quisumbing, Sycip, and Quisumbing,
the senior partner, the late Ramon Quisumbing, being the father-in-law of
theundersigned, and the most junior partner then, Norberto J. Quisumbing, being his
brother- in-law.

DISSENT OF J. AQUINO

The petition may be granted with the condition that it be indicated in the letterheads of
the two firms (as the case may be) that A.Sycip, former J. Ozaeta and H. Ozaeta are
dead or the period when they served as partners should be stated therein.The purpose
of the two firms in continuing the use of the names of their deceased founders is to
retain the clients whohad customarily sought the legal services of Attys. Sycip and
Ozaeta and to benefit from the goodwill attached to the names ofthose respected and
esteemed law practitioners. That is a legitimate motivation. The retention of their names
is not illegal per se.

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LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.

FACTS
Antonio Chua and Peter Yao entered into a contract for the purchased of fishing nets of various sizes
and floats from Philippine Fishing Gear (PFG) for Ocean Quest Fishing Corporation (OQF), saying
that petitioner was also involved with OQF despite not being a signatory to the agreement. They failed
to pay the purchase price, hence PFG filed a collection case against Chua , Yao , and petitioner Lim
tong Lim as general partners. PFG also alleged that OQF is a non-existent corporation by virtue of a
certification by the SEC. Instead of answering the claim Chua filed a manifestation admitting his liability,
Peter Yao waived his right to be cross-examine and present evidence on his behalf and failed to
appear in subsequent hearing. Lim tong Lim filed an answer with counter claim and cross claim and
moved to lifting of the writ of attachment. RTC issued the writ of attachment on the nets, and was sold
at a public auction with the proceeds deposited to the court.
RTC ruled there was partnership between the three(Chua, Yao, Lim) as general partners were jointly
liable to pay respondent and anchoring on the Compromise Agreement they executed in the civil
case filed by Chua and Yao against Lim for the declaration of ownership of the fishing boats, among
other things.
Lim appealed to the CA the decision of RTC was affirmed.
ISSUE:
Whether or not by their acts, Lim, Chua, and Yao are deemed to have entered into a partnership.
HELD
Yes. A partnership is a contract where two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
That Petitioner requested to Yao who was engaged in commercial fishing to join in w/c Chua is
already a partner of Yao. The three engaged in a commercial venture for commercial fishing and
contracted loans to buy two fishing boats, and the nets and floats needed to operate the fishing
business. In their Compromise Agreement, they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These
boats, the purchase and the repair of which were financed with borrowed money, fell under the term
"common fund" under Article 1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided equally among them also shows that they
had indeed formed a partnership. It extended to the fishing nets and the floats, both essential to fishing,
which were obviously acquired in furtherance of their business.

The Compromise agreement is not sole basis of partnership.

Petitioner’s defense that he was a mere lessor does not hold water. In effect, he
would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua
and Yao with the excess of the proceeds to be divided among the three of them. No lessor would do

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what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership
among all three.

Corporation by estoppels: Although the partnership/corporation was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid existence, are held liable as general partners

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Oña vs. CIR

Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five
children. A civil case was instituted for the settlement of her state, in which Oña was
appointed administrator and later on the guardian of the three heirs who were still
minors when the project for partition was approved. This shows that the heirs have
undivided ½ interest in 10 parcels of land, 6 houses and money from the War Damage
Commission.

Although the project of partition was approved by the Court, no attempt was made to
divide the properties and they remained under the management of Oña who used said
properties in business by leasing or selling them and investing the income derived
therefrom and the proceeds from the sales thereof in real properties and securities. As a
result, petitioners’ properties and investments gradually increased. Petitioners returned
for income tax purposes their shares in the net income but they did not actually receive
their shares because this left with Oña who invested them.

Based on these facts, CIR decided that petitioners formed an unregistered partnership
and therefore, subject to the corporate income tax, particularly for years 1955 and 1956.

Petitioner protested against the assessment and asked for reconsideration, which was
denied hence this petition for review from CTA’s decision.

Issue:
W/N there was a co-ownership or an unregistered partnership

Held:

Yes, the petitioner formed unregistered partnership.

SC held instead of actually distributing the estate of the deceased among themselves
pursuant to the project of partition, the heirs allowed their properties to remain under the
management of Oña who used the said properties in business by leasing or selling
them and investing the income derived therefrom and the proceeds from the sales in
real properties and securities.

It is contrary to their contention merely limit themselves to holding trhe properties

inherited by them. It is admitted during the material year some of the said properties
were sold and considerable a profit from these ventures were divided among the
petitioners proportionately in accordance with their respective shares in the inheritance.

For tax purposes, the co-ownership of inherited properties is automatically converted

into an unregistered partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent to produce profits for
the heirs in proportion to their respective shares in the inheritance as determined in a
project partition either duly executed in an extrajudicial settlement or approved by the
court in the corresponding testate or intestate proceeding. The reason is simple. From

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the moment of such partition, the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of them to manage and dispose
of as exclusively his own without the intervention of the other heirs, and, accordingly, he
becomes liable individually for all taxes in connection therewith. If after such partition,
he allows his share to be held in common with his co-heirs under a single management
to be used with the intent of making profit thereby in proportion to his share, there can
be no doubt that, even if no document or instrument were executed, for the purpose, for
tax purposes, at least, an unregistered partnership is formed.

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Obillos v. CIR
Facts:

In 1973, Jose Obillos completed payment on two lots located in Greenhills, San Juan.
The next day, he transferred his rights to his four children for them to build their own
residences. The Torrens title would show that they were co-owners of the two lots.

However, the petitioners resold them to Walled City Securities Corporation and Olga
Cruz Canda for P313k or P33k for each of them. They treated the profit as capital gains
and paid an income tax.

The CIR requested the petitioners to pay the corporate income tax of the theory that the
four petitioner had formed an unregistered partnership ventures.

The petitioner contested the assessment.

The two judges sustained the appeal of the petitioner.

But as testified by Obillos, they have no intention to form the partnership and that it was
merely incidental since they sold the said lots due to high demand of construction.
Naturally, when they sell them as co-partners, it will result to the share of profits.
Further, their intention was to divide the lots for residential purposes.

Issue:

Was there a partnership, hence, they are subject to corporate income taxes?

Ruling:

No. it is error to consider the petitioners as having formed a partnership under Article
1767 of the Civil Code simply because they allegedlyt contributed P. 178 K to buy the
two lots, resold the same and divided the profits among themselves.

To regard the Petitioners as having formed a taxable unregistered partnership would

result in oppressive taxation.

As Article 1769 (3) of the Civil Code provides: the sharing of gross returns does not in
itself establish a partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are derived. There must
be an unmistakable intention to form a partnership or joint venture.

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